Risk/Reward Vol. 123
"Everyone's watchin' to see what you will do/Everyone's lookin' at you
Everybody's workin' for the weekend/Everybody's goin' off the deep end"---lyrics from "Workin' for the Weekend" by Loverboy
"Germany, Germany above everything
Above everything in the world"---lyrics from "Deutscheland uber Alles" once and now the German National Anthem
"Turn around, every now and then/I get a little bit lonely and you're never comin' round
Turn around, every now and then/I get a little bit tired of listening to the sound of my tears"---lyrics from "Total Eclipse of the Heart" by Bonnie Tyler
Congratulations to those that have remained in the stock market since mid-May! "Everyone was lookin' at you," and so far you have prospered. The Dow Jones Industrial Average finished the week up 213 points, well above where I exited a few weeks ago. The reasons for this upward movement are not mysterious despite the deluge of bad news and uncertainty (Spanish bank debt, Greek elections, lower copper prices, lower corn prices, lower demand for oil, etc.) In fact, the news is so bad, market participants are "watchin' to see what central bankers and politicians will do." Many investors have "gone off the deep end" (in my opinion) continuing to buy in the belief that the European Central Bank and the Federal Reserve will turn on the printing presses pumping more "liquidity" into Eurozone banks and re-instituting quantitative easing (QE3), both of which have traditionally resulted in stock prices rising. If the leftists prevail in Greece on Sunday, those printing presses better start "workin' this weekend".
But are rumors of ECB liquidity and/or QE3 valid reasons to re-enter the market? I don't think so. I dipped into and out of the market on such rumors during the 2011 Eurozone crisis (which lasted from August through mid-December's announcement of the LTRO, see www.riskrewardblog.blogspot.com Vol 98) and ended up losing money. This time I am staying on the sidelines until I see some sign that a longer term solution to the Eurozone sovereign debt crisis is in place.
And that may be some time in arriving. France under the leadership of newly elected President Hollande is aligning with Italy and Spain calling for the "mutualization" of Eurozone debt by replacing the sovereign debt of individual countries by Eurobonds backed by the full faith and credit of ALL Eurozone members. Understandably, this is a non starter for the Western world's only solvent economy, Germany, which heretofore has refused to put its balance sheet on the line for the likes of Greece, Ireland, Portugal or any other bankrupt Euro-flop. If and when Germany relents, it will be only after huge political and economic concessions are extracted which will make Germany the de jure as well as de facto ruler of all of Europe. OH, you think not! Remember dear Readers, this is a poker game that is more than two hundred fifty years old with domination at stake. Today, all of the aces and face cards are in the hands of a power hungry nation that last century started two world wars resulting in the death of over 75,000,000 people. The lyrics are "Germany, Germany above everything" not "Oh, come fellow Krauts let's help those lazy ass Greeks and French who retire before age 60." I see a vengeful Germany visiting a little more pain before any resolution is reached.
Once I do re-enter the stock market, I will first buy oil and natural gas. In addition to LINE, MHRpD, COP, I like Statoil (STO), the Norwegian exploration and development company that is finding oil in such diverse places as the Gulf of Mexico, Tanzania and the Bakken. And shockingly, I am looking for a "turn around" from Total, the integrated French oil company. Its stellar performance has been "totally eclipsed" by its association with France, the nation. But Total is truly a global enterprise that pays a handsome and safe dividend. I also like BlackRock Enhanced Dividend Fund (BDJ) a closed end fund comprised of 100 dividend paying stocks. It trades at a discount to its net asset value (read about this concept at www.cefconnect.com , an excellent resource), and pays a delicious 9+% dividend. Two other closed end funds worthy of consideration are Cohen and Steers Quality Real Estate (RQI) and Nuveen Energy MLP (JMF). These likewise provide instant diversification within each sector and great yields.
For those that have prospered in the past month, I again congratulate you. However, give some thought to taking some profits. You don't want to be caught short like the 80's group Loverboy which lamented as follows in its hit "Turn Me Loose"
"Too much, too soon, you got it all so easily
Too much, too soon, now somebody got the squeeze on me".
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